Ladies and gentlemen, welcome to the Helvetia Half Year Results 2024 conference call and live webcast. I would like to remind you that all participants will be in listen-only mode, and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Fabian Rupprecht, Group CEO. Please go ahead, sir.
Ladies and gentlemen, welcome to our analyst conference call on the half year result 2024 . Within the next 20-30 minutes, our CFO, Annelies Lüscher Hämmerli, and I will give you detailed information on our business development and the key financials of the reporting period. I look forward to discussing our performance and outlook with you. As you can see on the agenda on slide three, I will start by giving you a brief overview of the financial highlights of the first half of the year. Annelies then will explain the key financial figures and targets in more detail. At the end of the presentation, I will give an outlook on our current focus areas. Afterwards, Annelies and I will be happy to answer any questions you may have. Moving on to slide four now.
Let me start with the highlights of the first half of 2024 . The performance in the reporting period was characterized by solid profitability across the board, a continued strong level of capitalization, and a disciplined growth with strict focus on profitable and capital-efficient opportunities. First, we generated underlying earnings of CHF 285 million, practically stable compared to the very good level in the prior year period. The result was based on a very solid performance in non-life and life, and supported by higher earnings in the other activity business areas. What I'm particularly pleased about is that the figures show clear signs of an improving underlying technical performance. Both Annelies and I will come back to that in more detail on the next slides.
Driven by the stable development of underlying earnings and the non-recurrence of a non-operating one-off effect in the prior year, we have achieved an increase in the return on equity to 13.4%, which is close to the upper end of our target range. Our business therefore demonstrates very robust profitability. Our business mix is a crucial factor contributing to this. Our diversified setup allows us to better balance out events affecting individual market units. This is again visible in the results of the first half year of 2024 . While claims from natural catastrophes were higher compared to the prior year period in some markets, especially in Switzerland, other areas such as specialty markets or non-life business in Spain, Germany, and Italy, improved their technical performance. Second, Helvetia continues to benefit from great resilience due to its outstanding financial strength and its diversifications.
This is reflected in our excellent SST ratio of around 300% as of end of June 2024, and the confirmation of our S&P financial strength rating of A+ in July 2024. Third, we have achieved solid top-line growth in line with our disciplined focus on profitable and capital-efficient areas. The main driver of growth was the non-life business, even though we have maintained a disciplined underwriting approach. In this business area, growth was significantly supported by rate increases. In spite of these, we achieved growth in non-life premium volume above the market average in both our main country markets, Switzerland and Spain, and also in Germany and Austria. At the same time, we were selective in writing business in some specific lines of business, especially in the cyclical specialty business, to further optimize portfolio composition and profitability.
In the life business, we successfully focus on capital-light business. With this approach, we were able to grow new business volume by 8.6% while maintaining an attractive new business margin. An increase in overall business volume in life was driven by ongoing growth in semi-autonomous solutions and pure risk products in Swiss Group Life, among others. In addition to our core insurance business, we also continued to grow the fee business in line with our strategy. Growth in fee revenues of 10.4% was mainly the result of the expansion of our non-insurance business around health and care services in Spain.... Growth in our fee business is profitable, as shown by an even stronger increase in the fee result.
The solid profitability, strong capitalization, and disciplined growth we have achieved in the first half of the year form a solid foundation for our target of paying out more than CHF 1.65 billion in dividends by 2025. With this, I hand over to Annelies, who will present the financials in more detail.
Thank you, Fabian. Also from my side, I would like to welcome all of you to our conference call today. I will give you an overview of our financial performance in the first half of 2024 . As always, we use a short version of the presentation for this conference. The full slide deck with additional information is available on our website. First, let's have a look at our key figures relating to profitability and growth on slide 5. Once again, our results in the first half of 2024 demonstrate the benefits of our diversified business model. All business areas and segments showed a solid profitability despite the demanding market environment in parts. Helvetia generated underlying earnings of CHF 285 million, compared to CHF 290 million in the prior year.
This performance metric focuses on the operational development of our insurance and fee business. The volatility from capital market developments and other non-operating effects are excluded. Therefore, the major component of the underlying earnings are technical results of our insurance businesses. These developed well in many parts of the group's business. The specialty market segment, the fee business, and non-life business in Spain, Germany, and Italy increased their underlying earnings. In Switzerland, the non-life business was affected by higher claims from natural catastrophes, in particular from floods and storms at the end of June. Combined with lower gains from the development of prior year claims and a slightly higher unwind of discounting charge, this led to a decrease in underlying earnings in the non-life business on group level.
Considered together with group reinsurance, which substantially increased its insurance service result, but is included in the other activities business area, the non-life business still showed a remarkably solid performance. Similarly, the life business demonstrated a very stable development with a CSM release on the level of the prior year period. Underlying earnings in life were slightly below the prior year, mainly due to a low result from changes in the loss component within the usual range of volatility. Our IFRS net income stood at CHF 259 million. Besides underlying earnings, non-operating effects that were more favorable than in the prior year period influenced the result. In particular, the prior year had been affected by a one-off impairment in the intermediary and advisory business in Switzerland.
The IFRS result corresponds to a return on equity of 13.4% in the upper half of our target range. As you can see in the second box on the slide, fee business continued to grow in line with our strategic ambition to diversify income streams. Fee and commission income increased by 10.4% at constant exchange rates to CHF 211 million. Growth was mainly driven by the expansion of Caser's non-insurance businesses around health and care services in Spain. Our fee business again demonstrated its solid profitability in the first half of 2024. The fee result increased from 21- 24 million Swiss francs before tax. With this, the fee business contributed more than 5% to the group's IFRS net income. We are therefore well on track with regards to our targets on fee business.
I continue with the combined ratio in non-life at the bottom left side of the slide. As you can see, the combined ratio was above our target range at 95.4%. This was due to an increase in the claims ratio by 1.8 percentage points to 68.4%. To a large part, the increase is attributable to higher claims from natural catastrophes, in particular in Switzerland. The nominal Nat Cat ratio of the group increased to 2.4% from a low 1.4% in the prior year. Besides natural catastrophes, lower gains from the development of prior year claims and a lower discounting benefit due to the development of interest rates had an effect on the claims ratio. At the same time, the underlying technical profitability showed a remarkable improvement.
Excluding natural catastrophes and discounting effect, the current year claims ratio improved by 1.6 percentage points. This development reflects the success of the measures we took to strengthen technical profitability. These have started to take effect in the first half of the year and will continue to be implemented. The cost ratio, which also includes non-fulfillment expenses, improved by 0.5 percentage points to 27%. Main driver was a reduction in the administration cost ratio, resulting from efficiency gains, in particular in Switzerland. Besides technical profitability, we also continue to work on improving operational efficiency. Despite the higher headline figure, we are therefore very well on track to move the combined ratio back towards our target range, and we hold on to our ambition of 92%-94% for 2025.
Continuing with the next box on the slide, the new business margin in life was well within our target range at 4.9%. An increase of the margin in Switzerland could not fully compensate for a decrease in Europe. Both developments were largely driven by updated assumptions and model changes. At the same time, Helvetia achieved a higher new business volume compared to the prior year period. This demonstrates our successful focus on growth in profitable lines of business in life insurance. Helvetia generated a new business volume, measured by the present value of new business premiums of CHF 1.6 billion, 8.6% higher than in the prior year period. The main contributor to the volume of new business were investment-linked products. In individual life, the share of these capital-light products on new business was 77%.
Finally, on the right side of this slide, you can see the development of business volume. Helvetia continued to grow its core business with a focus on profitable and capital-efficient areas. In some specific lines of business, we have taken a selective approach to further optimize the portfolio composition and profitability. In total, we achieved a business volume of CHF 6.9 billion. At constant exchange rates, this is a solid increase of 4.7%. Growth was mainly driven by the non-life business, which showed an organic increase of 6.4% at constant exchange rates. In all segments, growth in non-life was supported by substantial rate increases. In Switzerland, we have strengthened tariffs at the beginning of this year. Supported by this, Switzerland once again achieved broad-based growth in traditional non-life business, which was above the market level.
In addition, embedded insurance business and the online insurer Smile contributed to growth. In Europe, non-life business generated a higher business volume than in the prior year period in all country markets. In Spain, Germany, and Austria, growth rates exceeded the market level. We are thus further strengthening market positions in our core insurance business with retail and SME customers. At the same time, we strictly focus on profitability, profitability, and are selective in writing business in specific lines of business with a challenging market environment, for example, in Italian motor insurance. Specialty Markets also developed positively with sustained high growth rates in property business, in Active Reinsurance, and in France. In this area, Helvetia continues to seize opportunities for profitable growth in a persistently attractive market environment.
In some specific other lines of business in the specialty market segment, we have been selective in writing business in the first half of 2024 in order to actively manage market cycles and optimize the composition and profitability of the portfolio. This applies to aviation in specialty lines or liability in active reinsurance, for example. In the life business volume, business volume grew by 2.3% at constant exchange rates. Helvetia continued to focus on capitalized products in this area. In life business in Switzerland, Group Life was the main driver of growth. Helvetia recorded higher single premiums in this area and achieved further growth in the number of actively insured persons in its semi-autonomous solution and in pure risk insurance.
As a result, the number of actively insured persons in Swiss group life increased compared to the end of 2023 to around 224,000 in total. Individual life business in Switzerland recorded a slight decrease in the business volume, mainly because of a strong development of investment-linked single premiums in the prior year period. Life business of the Europe segment, growth was driven by Spain and Germany. In Spain, the volume of investment-linked premiums, traditional products, and burial insurance increased. In Germany, we recorded a very successful development of investment-linked products. Finally, growth in life business was supported by active reinsurance, where we are establishing business with reinsurance solution for biometric risks. Let's now move to slide six and have a look at the CSM, the balance sheet, and our dividend strategy.
Slide 6 shows that our CSM stock is developing positively, and that we are very well on track with regards to our financial targets on capitalization and dividend payout. Our CSM in the life business has increased compared to the end of 2023. Profitable new business we have written in the first half of 2024 contributed CHF 126 million. The expected in-force return shows the contribution of the existing business to growth of the in-force return, were overcompensating for the CSM release of CHF 189 million. Normalized CSM growth, which includes these three items I just mentioned, was at 0.4%. The operating variance of CHF 302 million was largely driven by positive experience variances and operating assumption changes, in particular for costs.
In addition, growth of the CSM was supported by favorable economic variance, mainly attributable to positive effects from equity markets, changes in interest rates, and foreign currency. As you can see in the bottom left corner of the slide, Helvetia's capitalization remains on an excellent level. S&P has confirmed our financial strength rating of single A plus in July. The target of at least a single A rating is therefore met comfortably, and our regulatory solvency, measured by the Swiss Solvency Test, continues to stay on an outstanding level. We estimate our SST ratio to be around 300% as of thirtieth of June 2024. The fourth box on the slide relates to our dividend strategy. Helvetia has a strong basis for its payout policy of sustainably increasing dividends year by year. Our business shows solid profitability across the board.
We are growing in a disciplined manner, and our financial strength is excellent. With the dividend for the financial year 2023, that has been paid to shareholders in May 2024, we have reached a cumulative dividend distribution of almost CHF 940 million since 2021. Helvetia is therefore well on track to reach its target of paying out more than CHF 1.65 billion in dividends over five years until 2025. To enhance the fungibility of our surplus capital and to reinforce the resilience of our dividend strategy, we have announced our intention to create approximately CHF 375 million of what we call Free Deployable Funds in 2024. Free Deployable Funds are a buffer of unencumbered liquid assets at holding level.
The surplus capital has been transferred from the subsidiaries to Helvetia Holding during the first half of 2024, in addition to remitting the regular dividend. With this approach, we have increased the fungibility of free capital for the group and therefore our financial flexibility. In this context, the free deployable funds also support our dividend strategy to always pay at least the same dividend per share as in the previous year and reach our targeted payout by 2025. With that, I now hand over to Fabian again.
Many thanks, Annelies. On that last slide of the presentation, let me share an overview of what we focus on in the near future. As Annelies explained, our financial targets are within reach. Our targets on ROE fee business, life new business, and capitalization have been met comfortably in the first half of 2024 . And we have made strong progress compared to the full year 2023 in moving the combined ratio back towards our target range by considerably improving the underlying technical performance in non-life. At the same time, we're advancing with the works on the new strategy. I'm very much looking forward to presenting it at our Capital Market Day on 12th of December. As a first step to further evolve into an integrated international insurance group, we have adjusted Helvetia's corporate structure at the beginning of July.
The organizational changes are strengthening Helvetia's international dimension and collaboration within the group, thus laying the foundation for continuing to create value for shareholders and other stakeholders. Moving to the second box on the slide, technical excellence remains a key priority. We've already made good progress. Portfolio planning methods have been improved, and a wide range of measures to strengthen our technical profitability has been implemented in all market units. These measures mainly relate to tariff adjustments, renewal pricing, re-underwriting, risk selection, and claims management. Going forward, these efforts will be further intensified. In terms of tariff adjustments and your renewal pricing, we have achieved considerably rate increases in non-life. We increased rates by a high single-digit figure in 2020 for renewals in lines of business that are exposed to inflation, such as motor or property.
In some market units, rate increases in these lines of business even reached a double-digit range. At the same time, lapses stayed on a very reasonable level, with lapse ratios remaining slightly above prior year, but in line with expected levels across market units. This shows that we're able to push through rate increases. These rate changes have significantly supported our growth and started to earn through to the P&L in the first half of 2024. In combination with other measures, the rate increases resulted in a substantial improvement in the current year claims ratio, excluding Nat Cat and discounting of 1.6 percentage points. We expect all the measures to take effect over time. The impact on our financial numbers will continue to gradually become visible in 2024 and 2025. Moving to operational efficiency.
As Annelies explained, we have achieved a further reduction in the non-life administration cost ratio through efficiency gains in the first half of 2024. Operational efficiency is an ongoing task and will remain key going forward. As such, we will continue to regularly review our structures and processes to build on our strengths and fully leverage the existing potential for synergies and further efficiency gains going forward. Finally, focus is on selective growth. We have an international and well-diversified setup. It allows us to selectively pursue attractive growth opportunities and to benefit from specific market conditions in the different business fields. In the first half of 2024, we have benefited from rate increases in our retail and SME business, and a persistently favorable market environment in some lines of business in specialty markets. These developments led to strong growth in property business, for example.
At the same time, we have been very disciplined in more challenging areas, such as liability and active reinsurance. With our flexible and diversified setup, our strong capital position and excellent reputation, we're well repositioned, well-positioned to further progress in these areas and leverage our strengths to serve our shareholders, our customers, our partners, our employees, and other stakeholders in the best way possible. This brings us to the end of our presentation. Thank you for your attention. Annelies and I are now available to answer your questions.
We will now begin the question and answer session. Anyone who wish to ask a question may press star one on their telephone. You will hear a tone to confirm that you've entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Questioners on the phone are requested to use only handsets and eventually turn off the volume from the webcast. In the interest of time, we kindly ask you to limit yourself to three questions at a time. You may register again for any follow-ups. Anyone with a question may press star one at this time. The first question is from Simon Fössmeier with Vontobel. Please go ahead.
Hello, everyone. It's Simon from Vontobel. My first question was on the property and casualty, on the measures to improve technical profitability. You just explained that. So if I may ask specifically on motor pricing in Switzerland and Germany, because some of your peers had really poor experience, specifically in Germany. And I was curious if you could talk about motor pricing a little bit. The second question is on the solvency ratio. Very strong solvency, very strong capitalization. If you could share your thoughts on capital repatriation, how you would like to get this closer to your target range? Thank you.
Thank you, Simon, for your questions. I suggest that I take the first question on motor pricing, and I will leave the second question to Annelies. To start with the first question, we already had said that at the year-end, we have been able to increase motor prices in Switzerland by around 8%, and we have basically not experienced lapse rates higher than what we had in previous years, so on the same level. And what has, of course, helped is that in the whole market, we saw similar trends. And we should not forget that we have a very important proprietary customer base, our own customer base, and we see very, very high loyalty.... Concerning Germany, we have increased prices even beyond 8%.
Overall, so partly double digit. Overall, with that compensated for the inflationary trends which we had in the past. Here, the same, we have seen slightly higher lapses, but fully in line with the expectations and are very happy with the progress, which you see as well in the numbers of Germany. I hand over to Annelies.
Yeah, thank you, Fabian. So, I'm happy to speak about our capitalization, which is very strong, and the SST ratio. So generally speaking, we see our strong capitalization as an advantage. It provides additional security and financial flexibility, which underlines our profile as a defensive, reliable name. The limiting factor of excess capital distributions to shareholders is generally the free statutory equity, not the Swiss Solvency Test or the SST. Our absolutely first priority is providing regular, predictable, and sustainable increase in dividends to our shareholders. And we stick to our strategic target, as mentioned, of distributing more than CHF 1.65 billion in dividends for the strategy period. We believe that not only dividends, but overall long-term return or growth of return is attractive for our shareholders.
We therefore regularly look at opportunities for allocating excess capital to profitable growth, both organic and through M&A, as well as controlled risk-taking. Of course, we also invest in efficiency initiatives to reinforce future profitability.
That's great. Thank you.
The next question is from Ahmed Muneeb with UBS. Please go ahead.
Hi, thanks for taking my questions. So firstly, on the holdco cash or the CHF 375 million. So I understand you did highlight that a full year, but you're not reporting the net economic dividend capacity. Is that still at CHF 800 million? And then related to that, on slide 45, you show the increase in the remittances, especially in life, by about CHF 100 million. Are there any non-operating remittances that are coming through as well? And is that just increasing the FDS from CHF 375 million to, let's say, CHF 400-500 million? So that's question number one. Second question is on the semi-autonomous business. What is the AUM and the fee margin that you earn on the semi-autonomous business? And then thirdly, on M&A. What is your M&A strategy?
Is it just going to be bolt-on, or are you looking for bigger areas or bigger M&A as well? Are you open to those? Thank you.
Thank you. Thank you for your question. So I suggest that your first question is taken by Annelies. On the semi-autonomous business, I will take, and the M&A strategy, I will take. Let me start with the last one first. So on the M&A strategy, our focus is currently on you know, growing our own business. So our focus is on internal growth. Our focus is on technical excellence, as we laid out. We will always look opportunistically at any opportunities that are there, but as I said, our focus is not on that, our focus is on our internal growth. So that's my answer on M&A. I suggest, Annelies, now you take question one on the funds.
Yes, sure. Happy to comment on the holdco cash. So what we show on page 45 on the operating cash remittance slide is that the cash remittance that happened in the first half of 2024 and 2023, and most of the cash remittance of our subsidiaries happens in the first half of the year. This includes, let's say, regular operative cash remittance out of the earnings, but it may also include one-off payments from our subsidiaries to the group or to the, yeah, to the mother companies. So it's a mix of recurring payments and one-off payments, and especially in half year 2024, there was a one-off payment from Swiss Life business.
Swiss life business is now very well capitalized, so it's also possible for us to transfer some of the excess cash to the mother company. This does not automatically mean that we will increase the holdco cash, so the so-called free deployable funds, but it means it's available at the mother company just below the holding company for deployment for additional growth in the group. Now, the third question was the question on the margin of our semi-autonomous solutions. So we usually do not disclose margins of specific business lines. And you have some information where you see how it's growing. We said that the capital light products were 77% of our growth in life business.
Okay, thank you. Just to follow up on the remittances, there's nothing outside of the operating cash remittance in 1Q, right? The 4-6 is the entire remittances.
Yes, these are the entire remittances.
Thank you.
The next question is from Hanif Farooq with J.P. Morgan. Please go ahead.
Hi, everybody. Thank you so much for taking the questions. Just returning a little bit on the topic of cash and the capital structure. Will the creation of this FDF concept and your group structure and just increase fungibility, will that get, you know, get you to reconsider your debt leverage position? I mean, the reason I ask is obviously your capital ratio well above any insurer, I think, that exists in you know, but you do have high debt leverage. So I think this is a question you've asked before, but I wonder if the free deployable funds kind of helps you think about reducing debt? That's question one. The second question is on the operating other result.
So it seems that you've got to your target of IFRS mix in operating other result. But is there room now for, you know, further growth in the fee result? And I noticed that the other result also benefited from lower central costs. Will that also be sustainable? My third question is on the underlying loss ratio in P&C, which clearly improved very impressively in 1H. You seem to be suggesting from your comment from pricing, that there's room for that to go down further. And, I mean, I note in 2022, for example, it was, you know, probably even another % down from the 1H performance. I mean, do you think you could return back to that kind of level? That's my last question. Thank you.
Thank you. So I suggest that the question on the FDF impacting capital structure, Annelies, you take that. As well on the growth on the fee result and the underlying claims ratio, I'm happy to comment on that one.
Sure. Let's start with the FDF, impacting capital structure. Generally speaking, the free deployable funds are one part of the toolbox in Helvetia uses in capital management, where another important metric there is the leverage ratio, where we have a target range. When replacing debt or issuing new debt or you have the refinancing of a debt, we always look at various aspects and then optimize between the options available. Let's say we have a senior debt refinancing, then we look at: does it make sense to refinance at all? Does it make sense to refinance with a senior, or does it make sense to refinance with a hybrid? In these considerations, many dimensions play a role.
On the one hand, the capitalization, on the other hand, the interest level at that point in time, and, as you might know, many more financial considerations. Generally, the free deployable funds are important to us, especially since our results with IFRS 17 got a bit more volatile, and we want to make sure and show our commitment to our dividend strategy, which says that we pay increasing dividend year after year. Only in exceptionally bad years, and that's very seldom, we keep it stable. And in order to show you, to ensure you that we are able to do that, we have placed about one time a dividend in these free deployable funds at holding level, completely unencumbered. That's the idea and the reason behind the free deployable funds.
Yeah. On the question number two, on the growth in results. I'm not sure we got your question completely. Could you be so kind just to repeat that one?
Of course. I was talking about the fee results and the fee income. I mean, you've basically got to your target level in terms of that, those numbers, in terms of the mix of IFRS profit, for example, coming from fees. So I was wondering whether you think there was more upside there in the near term, but also in your other operating result line, which I think is where the fees probably come. There was an improvement in costs, so I just wanted to understand, therefore, if I look at the other operating income line, if we get better, you know, further growth in fee results, so if the costs remain at a low level, whether that's, you know, the potential for that to grow or improve.
Okay. On the fee income, you know, yes, we have achieved what we put into our strategy. We have as well invested in new service units in Spain in particular. We expect that this number will further increase in the years to come. We will overall give you an outlook on how we want to go about the fee business in the Capital Market Day on 12th of December, and then elaborate more on that. The share of the fee business, interest income with 5% is unchanged. We have still your third question on the underlying claims ratio, which I think is an important one.
As you pointed out, our current year combined ratio has improved by 1.6%. The measures which we have taken on profitability, you know, so we have started, so there is more things to do and more things to come. We are optimistic that we will, you know, be able to improve further. We have as well said that our combined ratio, which we want to have in the range of 92%-94%. Our current combined ratio is above that. We said that we're optimistic that we get back to 92%-94% by 2025. So, we expect that trend to continue, of course, with some volatility as always, but overall, that's the direction we want to take.
Thank you very much.
The next question is from Anne-Chantal Berset with Octavian. Please go ahead.
Good morning, everyone. I have a question on the life side. If you look at your page 28, the underlying earnings in life was down 10% year on year. So maybe could you elaborate on the main driver outside the loss component that is explicit there? So elaborate on the other driver that brought this 10% down, and maybe also an outlook for what we should expect in full year, and so on. Also on the other activities, which we know is a bulk of many things, also, could you maybe give us some more insight into the positive effect that you had in other activity, also including the IFRS effect beyond the impairment that is already mentioned? So if you could have a bit of more insight, what happened there.
If I understand from the previous comment from you, Fabian, so the combined ratio target range for 2024, this 92%-94%, is not now. I mean, it's not in reach anymore, if I understand you clearly, for 2024.
Okay. I suggest that the first two questions I give to Annelies, and I take the last one. So I take the last one directly. No, that's not what I said. What I said is that we have a target range, 92-94. That's part of our existing strategy, and we said that we want to achieve those financial, and that we want to be in that range in 2025. We will move towards that range over time. As you can imagine, combined ratio does not only depend from the current year, it depends as well from Nat Cat events, discounting effects and other things. And that is very hard to forecast for the next four months.
Stay with us and we will see where we will end up end of the year. I give now the first question on life and in particular on others, because I think that's very important, that we make clear what is in the segment others. I hand those two questions over to Annelies.
Yes. So let's go first go to life and then there to the underlying earnings. As you see in the table, the CSM release is very stable. That's good, and that's also expected from IFRS 17. So the question is open, where does the volatility come from? And the volatility mainly comes from, in the underlying earnings, I mean, mainly comes from this part of the business, which is not under VFA classified, but under BBA. It's let's say a phenomenon or a rule of the Spanish market, that the Spanish life products decided by auditors and regulators, have to be accounted for under the BBA accounting treatment, and cannot be accounted for, like the rest of the European life business or under VFA.
So the treatment of BBA leads to a little bit of volatility year on year, so much more volatility relative to the very stable CSM deployment over the year. And secondly, there was also an effect from a positive one-off effect in half year 2023, which did not reoccur in 2024. To the second question regarding other. In other, there is, as we have mentioned, such things as the impairment on MoneyPark is in there, so it did not reoccur, obviously, in half year 2024, so that's a positive effect. But also, the group reinsurance result is part of other, and the group reinsurance result, due to the claims development in first half year of 2024, was much more beneficial to group reinsurance than in 2023.
That's another large driver of the other. Additionally, we had less operating costs in other. This is, of course, also beneficial, and having a focus on operating excellence, we expect that part to be recurring. Third or fourthly, we also have the fee result in there, just mentioned before, which also developed positively to the upside. That is the main composition of the area other.
Yeah, and Chantal, so thank you for your question. Just to emphasize again that, because I think that's particular how we do it in Helvetia, that we have under other, the internal reinsurance. Which is basically non-life, in other companies, it's often shown under the non-life underlying earnings, yeah? So under our, so that positive effect other companies would show under underlying earnings, non-life, and therefore, those would be higher, how others look at it. So I know that this sometimes creates misunderstandings, and that's why I want to emphasize it.
But we could say, also, you had all this Nat Cat Switzerland, basically, that has been fully absorbed by the local BU, and you didn't have so much at the group reinsurance taking these claims. Is it fair assumption?
Yes, it's partly a fair assumption because there was a part absorbed by the group, but it was not very relevant. Because we have-
Thank you.
We have also proportional contracts, which kick in, let's say, immediately.
Thank you.
The next question is from René Locher with KBW. Please go ahead.
Yes, thank you. Morning. Just a few follow-up questions. I guess, we've discussed a bit these other activities. But if you take a look at slide number 9, where we have the bridge from IFRS net income to the underlying earnings. I mean, it would be nice to see that in three to four years' time, you know, IFRS and underlying is very close. So, I mean, the biggest delta is still this other non-operating items, which decreased from CHF 54 million to CHF 22 million. So I was just wondering if you just could highlight once again, what is in there. And then, yeah, on the combined ratio target, Fabian, you mentioned is 92%-94%. Is it fair to assume that Switzerland will lead the way to achieve again, this 92%-94%?
Because as I understand, in this 96.4% combined ratio, H1 2024, there we have Nat Cat, and I guess, Annelies, you mentioned that you have also lowered the administration cost in Switzerland. So just as a trend, you know, is it Switzerland who is leading the way? And again, from my understanding, these free deployable funds-... million. So that's roughly CHF 7 per share. Are they sitting in the IFRS number or accounts, or are they already in the stat accounts? And right, you have mentioned it's free capital. It's not cash as such. Thank you.
Thank you, René. I suggest that the first question on the bridge underlying earnings to IFRS, that Annelies, you take it. I'm happy to take the one with the combined ratio, and then I suggest that, Annelies, you take the one on the free deployable funds. If that is okay with you. Would you start?
Yes. Yes, I can start. So the question was regarding page nine, other non-operating items moving from -54 in 2023 half year to -22 in 2024. So the main driver there is the impairment we had in 2023 of CHF 27 million, which is, of course, not recurring. Then other smaller effects, but that is really the-
Okay.
- the main effect.
Mm-hmm.
Then regarding the Free Deployable Funds. So this is really now cash or assets, so financial assets sitting in the holding company. They were all transferred in the first half year of 2024. That means really the cash was transferred and then invested. It's now invested in liquid positions like money market or highly liquid fixed income instrument of very high quality. So it's really. It's not excess capital, it's really-
Mm-hmm.
- tangible cash.
Okay. Good news. Mm-hmm, thank you.
Now the question on combined ratio and the question whether Switzerland will lead the way. Look, I would say that all segments will contribute on the way forward to improve the combined ratios, because what we call the technical excellence program, it applies to all segments and to all business lines, so we're working everywhere. I would not say that it's necessarily Switzerland leading the way. Still, when you refer to Switzerland, Switzerland historically has always been a very profitable market, and I would, you know, assume that as well, going forward, that Switzerland will remain a very profitable market. I think that's probably the best answer I can give on that one.
Mm-hmm. Okay. Thank you.
We have a follow-up question from Hanif Farooq with J.P. Morgan. Please go ahead.
Hi there. I'm really sorry to drag this out. I just have two more questions, if that's okay. Firstly, in your non-life business, there's clearly a trend where investment income is improving, but the IFRS, the financial expenses are growing, which makes sense because you're obviously unwinding the discount rates. But it seems to be asymmetrical, so we're seeing your investment margin declining. Would that likely continue in the next few years because of the historic interest rate movement? So will we see IFRS growing more than investment income, let's say, in 2025 , or 2H? That's question one. And then question two is on the operating variance in life, in the CSM. I noticed that you had this as well in 2023 , in the second half of the year.
Is there something here that could be recurring, or do you think we should just assume zero, that line in CSM, in future periods? Thank you.
Thank you for those two questions, and both are best answered by Annelies. So I hand over to you, Annelies, with the first question on non-life trend of improving, so on the investment income in non-life, and the second one on the operating variance, and whether there's something recurring.
Yeah. So let me start with the operating variance. So the main drivers in half year 2024 were positive experience variances and operating assumption changes, in particular in costs. Generally, the operating variance should not or in theory, should not have always the same size or the same directions as they really represent the experience, as the name says, our actuaries have, and the new best estimate that comes out of this experience we have had in the prior period on the valuation of the life business. So it's hard to speak of recurring parts. The only thing we could sort of say is recurring, as you know, we strengthened reserves to a large extent. When interest rates were falling, we always very prudently strengthened reserves.
Of course, now interest rates are a little bit higher than where they were at their lows. So with the runoff of the portfolio, we can therefore release always a part of these reserves. But generally, it's very hard to say what part of the operating variance may be recurring and what may be fluctuating. It's better to assume that these operating variances are generally a little bit fluctuating. Now, regarding the investment income, I have currently no basis to assume that the interest margin in non-life will deteriorate over time. Of course, then there can be variances from in some period, but generally, as in life, the higher the risk-free rates, the higher the interest margin is expected in general.
Just to follow up on that last point, my, I understand on the investment income, but the finance expenses are also growing because of higher yields. And it seems that your overall net financial results in non-life have squeezed and gone down. That was more my question about the IFRS, the financial expenses.
Which slide and which line do you exactly look at?
I am referring to, you know, in your underlying results, the insurance finance expenses in non-life. The operating insurance finance results has grown.
Yeah.
The operating results on the ground, but the two have squeezed your margin and your overall operating finances have gone down, and this we've seen this with other companies, that because yields went up so quickly, that for a few years, some of the companies are reporting that that will also continue in 2025 to reduce that, that net of the-
Yeah. So generally, the unwind of the discount is influenced by a lot of factors, especially, as we have now some experience to analyze this with the introduction of IFRS 17, especially the currencies are sometimes really hard to see and move the results around, let's say, or the results there. This line can be influenced also by currency movements. Currency movements in euro and dollar were quite large in the half year of 2024. So, there are many different effects there. Also, the business mix has an impact, the, how the exact, the currency in which the claims happen have an impact, and so on and so on. So I think it's difficult to have a clear prediction there.
Yeah, that's very helpful anyway. Thank you so much.
Yeah. Yeah. Good. Thank you.
As a reminder, if you wish to register for a question, please press star one on your telephone. Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Fabian Rupprecht for any closing remarks.
Thank you. So thank you for all your questions and, it was a pleasure talking to you, and, I'll see you at the latest on the 12th of December for the Capital Markets Day of Helvetia Group. Goodbye.
Ladies and gentlemen, the conference is now over. Thank you for your participation. You may now disconnect your lines. Goodbye.